Ideal tips to secure your special child's financial needs

Setting up a private trust is the best option, as parents can include specific clauses for the child's welfare.

A family with four children had a daughter prone to severe mood swings. She was also physically very weak, due to which she could not get married or have a family of her own.

Since the siblings were very close to one another, the parents created a private family trust and transferred the property to the trust, through a will. All the four children were made beneficiaries. This ensured they would all live together.

The parents specified an amount of money for their special child, after taking into account the medical costs and inflation.

They also included a clause that this girl would be the first to get all the benefits from the assets and the invested corpus of money, even if it meant the other beneficiaries got nothing. Only after her death would the assets be divided equally among the other siblings.

The parents could have willed all their assets to the special child. But that would not ensure she'd be well looked after, even by her siblings.

By transferring all the assets to a private trust, making all the children beneficiaries and giving the special child the first right to the benefits, the parents ensured her needs would be met.

Recounting this experience of one of her clients, Neha Pathak, head, trust and estate planning, Motilal Oswal Private Wealth Management says, this is the biggest concern for all parents, more for those with special children. Apart from providing financially, you have to ensure their other needs are also looked after.

And, contrary to popular belief, a private trust is not only meant for the rich. Such a trust can be set up with as little as Rs 100 as settlement amount and three per cent stamp duty.

By law, a child or person unable to contract cannot have a property in their name. But if you transfer the property in the name of a guardian, there is no guarantee the child's interests will be taken care. So, it is advisable to create a trust for the child and incorporate conditions which will not allow a guardian to enjoy the proceeds.

While there are no separate laws for setting up a private trust for special children, there are certain clauses you can include. Setting up a private trust allows parents and family of such children to incorporate special clauses and conditions to ensure the children's needs are well taken care, says Pathak.

"Even if you make a will, you will have to appoint a guardian to look after the children. So, it will not serve all the purposes. That is why we advise setting up private trusts," she says.

She talks about the experience of a family with a dyslexic child. The parents opted for a trust structure, where they put aside a house and a corpus of money for the child. The house was willed to the trust through a probate. The child was the only beneficiary and the parents included a clause that after the life of the child, all the assets, including the house, would go to charity. The other two children, along with a person who had been working for the family for several years, were made the trustees.

A trust will ensure the corpus put aside for the child is not touched by anyone; only the proceeds are utilised.

"Ideally, the father or mother can take the responsibility to be the trustee and joint beneficiary, along with the child. In some cases, even if there are siblings, parents are not comfortable making them beneficiaries because they fear conflicts in the future,'' says Rajmohan Krishnan, co-founder and managing director, Entrust Family Office Investment Advisors.

Then, parents can have an executor for the trust. The executor has no right to any of the assets. "It is preferable to have an individual as the executor, rather than an organisation. In the case of an only child, the executor can even be the family's auditor or family doctor, someone whom the family can trust,'' says Krishnan.

If a corporate trustee (an organisation with employees which offers these services for a fee) is appointed executor, the person dealing with the children could change. So, it is better to have an individual whom the child knows. "Keep a person of the same age as the beneficiary as the trustee or settlor. If it is an older person, they might not outlive the beneficiary. It is also possible to have more than one trustee'' says Pathak.

As a precaution, parents can nominate a protector to oversee or keep a watch on the trustee. The protector has no legal standing but can be given the right to remove the trustee, if required, she adds.

CLAUSES YOU CAN INCLUDE

On the investment pattern Since the money has to be available for the entire life of the child, it is advisable to invest more in fixed income. Investing in bank fixed deposits or fixed maturity plans will ensure the corpus is protected and also ensure a regular income for the child's needs. It is advisable not to invest too much in equities. It is advisable to use the trust option for making new investments, rather than investing in individual names

Money for various needs of the child The trust can specify how much money should be spent for health care, education, transportation or vacations, specialised needs such a physiotherapy or dental care, for instance, these being some of the common problems special children face. Such children are prone to dental problems and more money might be required for such treatment.

For instance, you can specify that 30 per cent of the money should be spent on medical needs and diet for the child. This will limit any chances of fraud by the trustee or settlor.

Specify child's needs like vacation, diet You can mention when the child should be taken for vacations and where, how the child should be educated and so on. For instance, if the child enjoys visiting his or her grandparents, you can include it as a clause. You can even specify who should accompany the child and whether the doctor's permission should be taken.

If the child can benefit from some special course or training programme, you can specify and set up a separate corpus for that. Specific details such as what food and medication should be mentioned.

Successor trustee If you want the trust to be diluted after the child's lifetime and to donate the proceeds to charity, that can be specified. If you are appointing a corporate trustee as the successor, that can be included. The trust would continue during the lifetime of its beneficiaries and then dissolved, in line with settlors' wishes.

"It is advisable to not be too rigid about the conditions and to allow some flexibility to the trustee. For instance, if the returns from investments are not enough, the trustee should be given some freedom to change the allocation,'' says Krishnan.

ADVANTAGES OF THE PRIVATE TRUST STRUCTURE• Trust can continue to hold/manage assets and utilise the trust fund to meet the needs of the beneficiaries• Protection and preservation of assets from false claims, fraud, and misappropriation within and outside family• Eliminating future complications in transfer of assets• Provision for distribution of assets in accordance to settlors' wishes• Management of assets by trustees in case of any contingencies to settlors• Probate will not be required for the assets transferred in the trust, thereby saving a great amount of legal formalities and legislative fees• Transfer immovable assets to the trust, through the registered wills of parents, thereby avoiding stamp duties on transfer to trust